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Understanding Loss Control

Preventing future losses benefits your premium

Insurance companies that insure businesses and nonprofits spend a good deal of money and time with loss control – the practice of trying to prevent future losses.

Loss Control is the practice of trying to prevent future losses.

The process usually begins with a representative visiting an insured and inspecting their property and procedures. Often this generates “recommendations” for an insured to implement that help to prevent or minimize future claims.

Obviously, the insurance company wants to minimize losses because it maximizes their profit. For that reason, many times their clients resist complying with the recommendation. They view the recommendations as inconvenient or expensive, sometimes both, for them, and as benefiting only the insurance company.

However, there is another side to it. The benefit to the customer. A number of years ago I remember a study that showed a business loses about $9 in profit for every dollar it collects from an insurance company. While I have no idea if these numbers are still accurate, there is no doubt the amount is substantial.

Let’s take a small worker’s compensation claim as an example:

A worker in a machine shop cuts himself. Holding his bleeding hand, he heads for his supervisor. Every other employee he encounters stops work for a few minutes to see what happened (lost production). His supervisor must take time to learn the facts, complete an insurance loss report, make sure the employee gets treatment (for all of which the supervisor is paid, but not adding to the company’s production). Someone must drive the employee to the emergency room (lost production for both people). The employee can’t work, so there is more lost production, or other employees fill in, perhaps requiring overtime. Later the insurance adjuster calls, requiring someone to take time to speak with him. The cost of the medical treatment goes into calculating the business’s experience modification, which goes up a couple of percentage points, increasing the worker’s compensation premium for the next three years.

The cost of the medical treatment may have only been a few hundred dollars, but it is easy to see the business sustained a lot of other losses for which they were not compensated.

From this example, it’s easy to see how preventing losses benefits both parties – the insurance company and its customer.

Unfortunately, there is no way to quantify how many losses are prevented. But the overall benefit to society in terms of lives saved, injuries prevented, and property preserved is considerable, both in terms of dollars and human suffering. Everyone benefits when a loss doesn’t happen.

If you have questions regarding a loss control visit from your insurance company, please contact us at 317-253-1155. We are here to ensure your peace of mind.